Marc J. Goldstein Arbitrator & Mediator NYC
July 25, 2013

Judicial Resolution of Arbitrator Challenges?: A Midsummer Night’s Dream

Tonight Arbitration Commentaries brings its readers the annual Midsummer Night’s Dream post. In tonight’s dream, an arbitration clause drifts in and out of view through an undulant layer of fog. In a fleeting moment of legibility, we see that the clause provides for arbitration under the UNCITRAL Rules in New York. Before we can read further to see if any appointing authority is designated, the dense misty curtain envelops the page anew. But a voice, resounding and echoing, instructs us: ” NOOOOOOO……”

The scene shifts. Two pinstripe-clad figures, one in gray, one in blue, appear on the steps of a forbidding massive edifice marked by the letters “PCA.”  In time, a white-clad monk-like form, hooded and faceless, appears at an open window on a upper floor, and unfurls a white sheet marked in red white and blue letters “SDNY.”

Could this be?  Could it one day come to pass that the US District Court in Manhattan would be designated by the Permanent Court of Arbitration as the appointing authority in an international case under the UNCITRAL Rules? Please indulge this fantasy a moment longer, as there is method to this madness.

Chapters One and Two of the Federal Arbitration Act contain provisions for judicial power to appoint arbitrators. But there are material differences. Chapter Two, implementing the New York Convention, simply provides in Section 206 that a court having jurisdiction, in an action or proceeding that falls under the Convention, may appoint arbitrators in accordance with the provisions of the agreement. So if the Secretary General of the Permanent Court of Arbitration, upon application of a party in a case under the UNCITRAL Rules that (from an FAA Chapter Two perspective) falls under the Convention, did designate a US federal district court as the appointing authority, there would be no jurisdictional obstacle to the court’s fulfillment of the mission. That would not be the case under Chapter One, Section 5 of the FAA. That original domestic arbitration enactment from 1925 envisioned a judicial role in the appointment of arbitrators only in default — if the parties did not specify a method of appointment, or if the agreed method became unworkable such that the parties’ intent to arbitrate would be stymied unless the court lent assistance.

That difference is worth understanding, because the limited judicial role in appointments under FAA Chapter One underlies a well-developed body of federal jurisprudence holding that the federal courts will not intervene in an ongoing arbitration to remove and replace an arbitrator on grounds of bias or lack of independence.  US courts have read Section 5 in combination with Section 10(a)(2) which permits the court to vacate an award based upon the “evident partiality” of an arbitrator, to require the conclusion that a party has no judicial redress for arbitrator bias during the arbitration, but only the right to seek annulment of the award. The courts have injected a policy component into the statutory analysis, reasoning that multiple challenges to consecutively-appointed arbitrators might be employed as a tactic to paralyze the arbitration process. For a very recent installment of this jurisprudence, read the opinion of a Boston federal judge in National Casualty Co. v. OneBeacon American Ins. Co.,  2013 WL 3335022 (D. Mass. July 1, 2013). [Also read a case discovered by your Commentator after this post was written: PK Time Group, LLC v. Robert, 2013 WL 3833084 (S.D.N.Y. July 23, 2013)]. In National Casualty, a reinsurance case, the parties had  agreed upon a rather convoluted process to break a deadlock on selection of the presiding arbitrator that involved each party-appointee submitting a list of candidates that would be ranked by the other. But having not selected an institutional provider of arbitration rules, they had no private mechanism for challenge. The court, citing the line of cases discussed here, refused to take on that role, and thus denied an application to strike one presiding arbitrator candidate from the list.

This judicial position of abstention has not caused much outcry because most arbitration in the US is administered by private organizations like the AAA whose rules provide a challenge process. And the abstention position is in part the legacy of the pre-2004 era of arbitrator ethics in the US, when the party-appointed arbitrator was presumed to be partisan. Courts understandably had little appetite to be involved in sorting out tolerable and intolerable partisanship. And at a time in history when more domestic arbitrations were one-day events with minimal discovery, the costs of new proceedings in the rare instances when an arbitrator was found, post-award, to have been unacceptably biased, were not so great as to evoke much organized consternation.

But that was then. Today it seems rather regrettable that parties facing multiple years of proceedings and millions of dollars in attorney and arbitrator fees should have to complete the case before a tribunal that includes a biased arbitrator if they have not agreed to use rules that include a challenge process.

This post will not elaborate further the arbitration policy case for discarding the current doctrine. The modest point made here is that none of this doctrine appears to have been developed or applied in international cases falling under the Convention and FAA Chapter Two. [The Court in the newer PK Time Group case, above-mentioned in brackets, failed to acknowledge that the case fell under the Convention, and failed to analyze it under FAA Chapter Two, as the case evidently reached federal court upon removal from New York state court on the basis of diversity.] At the very least, in a case such as the one in my Midsummer Night’s Dream, where the UNCITRAL Rules are used including Article 13(4) providing that the appointing authority shall rule on any challenges based on an arbitrator’s alleged lack of independence or impartiality, there would seem to be no compelling reason for the court to decline to entertain such an application. And indeed by entertaining that application the court would be enforcing the parties’ agreement according to its terms. Courts could and should distinguish the FAA case law on the basis that it was not developed in cases under the Convention and Chapter Two. Further, courts carrying out a mandate as appointing authority that is derivative of the parties’ agreement should be reluctant to construe Section 10(a)(2) as an implied prohibition on addressing “evident partiality” during the course of the proceedings. After all, in the context of Chapter Two, Section 10(a)(2) applies only to the extent it is not in conflict with Chapter Two, and an application of that Section to render unenforceable an agreement of the parties to have the appointing authority rule on arbitrator challenges would be just such a conflict.

A Sweet Dream on a mid-summer night.

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